X Company is considering outsourcing its email system. Total costs related to la

Question

X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,725 employee mailboxes, were as follows:

$10,326 of the computer hardware costs were common costs that will continue even if the email system is abandoned, and X Company will still need to pay for the virus protection license. Y Company has offered to operate an email system for X Company for $11.10 per mailbox. Next year, X Company estimates that 4,190 mailboxes will be required per month.

By how much will X Company's monthly profits change if they decide to outsource its email function to Y Company instead of managing the service internally? [A positive number means that make costs are more than buy costs; a negative number means that make costs are less than the buy costs.]

Variable costs:     Email license $18,625     Virus protection license 5,215     Miscellaneous 16,390 Fixed costs     Computer hardware 24,585

Explanation / Answer

                                    Inhouse operations      Outsourced Total per email total per email Total Number of mailboxes 3725 4190 4190 Variable cost       Email license 18625 5 20950       Virus protection license 5215 1.4 5866 1.4 5866       Miscellaneous 16390 4.4 18436 Fixed cost        Computer hardware 24585 24585 10326 outsource cost 11.1 46509 64815 69837 62701 Cost if outsourced 62701 Cost in inhouse operations 69837 Change in the monthly profit -7136

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